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Energy Minister shares plans to revamp extractive sector

Over the last few months, the Government has been making efforts to have open and frank discussions regarding T&T’s extractive sector through initiatives such the Natural Gas Master Plan and Spotlight on Energy Forum.

Minister of Energy, Franklin Khan, at the launch of the Extractive Industries Initiative (TTEITI) steering committee’s fifth T&T EITI Report for fiscal year 2016, reiterated the Government’s support of the EITI’s focus on transparency and accountability in the country’s extractive sector.

Minister Khan, during his feature address at the launch gave an overview of the current state of country’s extractive sector and shared some of the Government’s plans to combat some of the issues currently impacting the sector.

Below is an excerpt of the address given by the Energy Minister at the launch ceremony of the T&T EITI Report 2016, on Friday, May 11, 2018:

The EITI’s key words are “extractive” and “transparency” as the name suggests focuses on transparency and accountability in how a country manages its oil, gas or mineral resources. As a government, we subscribe to the principles of transparency and accountability and therefore the EITI has our full support.

Recent events in the form of the Gas Master Plan and the Spotlight on Energy are testimony to our commitment to transparency and accountable. We also laid the Gas Master Plan in Parliament and for the first time citizens had access to that level of detail into our energy sector policy.

Through the Spotlight on Energy Conference, we highlighted the country’s energy sector challenges and gave a lucid overview of how this Government plans to deal with these setbacks decisively. It is the first time in the history of T&T that such a fundamental issue for the sector was discussed with the people. The energy sector has been a sector always in secrecy.

The EITI process is relatively straightforward, but its importance cannot be understated. For a particular year, companies submit data on their tax payments.

The Government submits information on its tax receipts, while an independent auditor verifies the information, reconciles the differences and explains the reason for the differences between the figures submitted by both government and companies. Companies, government agencies and ministries must provide supporting data to the independent auditor to support their claims as well, whether actual receipts or audited financial statements.

Over seven years of EITI implementation, the difference between government and companies’ revenue have been reconciled and the independent administrator/auditor has confirmed that all revenue has been accounted for.

This independent verification is very important, as it provides an impartial account of the payments made by companies and revenue received by the Government.

The records will show that there has been full reconciliation of the payments made by companies with Government’s receipts from the extractive industries from the inception of this report.

FINDINGS

This latest EITI Report confirms the decline in government revenue from the energy sector, a downward trend that has impacted us all. For 2016, the report shows that we received total receipts of $8.8Bn, compare this to the $28.6Bn for 2014. This is a 70 per cent decline. This is not only due to lower prices and lower production but also very generous tax concessions.

In 2014, the then government agreed to the grant of accelerated allowances which entitled companies to write off development costs against revenue in three years: 50 per cent in year 1; 30 per cent in year 2, and 20 per cent in year 3, as compared to a period of five years.

Companies were also allowed to write off 100 per cent of exploration costs in the year incurred. The combination of these allowances and the loss relief of 100 per cent of losses, contributed to the substantial reduction in government’s take from the sector.

As a consequence, the government is in discussions with two of the major gas producers—bpTT and Shell to ensure a more equitable sharing of revenue earned from the monetisation of our hydrocarbon resources is attained.

The State has a sovereign right to an equitable share of the economic rents derived from its wasting resources. This Government intends to ensure that this right is respected and honoured.

For 2016, these totals were reconciled against the payments disclosed by 43 reporting companies.

There were minor differences amounting to $26 million, which were due to foreign exchange differences; timing differences and insurance premium tax payments on foreign policies paid by insurance brokers.

For the third year running, the NGC is the largest taxpayer contributing $5.7 billion to government revenue, followed by EOG Resources with payments of $1.3 billion and bpTT with payments of $480 million.

This statistic is most revealing.

The obvious question is how can EOG with a production of 400 to 450 Mmcf/d contribute $1.3 billion in taxes and other receipts to government whereas bpTT with five times the production in the amount of 2.2 Bcf per day contributed a mere $480 million or one-third of EOG’s contribution.

In the extractive industry, there cannot be taxation based on profits only. This wide disparity in revenue has indicated, among other matters, a lack of consistency in royalty regime and is the justification for the introduction of 12.5 per cent royalty rate across the board for gas.

The positive impact on revenue has already been realised as royalty receipts from gas for first quarter calendar 2018 amounted to $534 million, which was substantially higher than quarterly payments in the previous year.

This gives credence to the conclusion drawn by Poten and Partners in the Gas Master Plan Report that T&T was systematically being denied of its revenue entitlements.

They estimated that the country lost up to US$6 billion annually from transfer pricing practices for the period 2010 to 2014 and continues to lose US$1.5 billion annually. They deduced that the revenue leakage was sustained primarily through the LNG business.

In the Spotlight of Energy Conference held by the Ministry of Energy and Energy Industries (MEEI) in March 2018, the revenue challenges faced by the Government and the findings of Poten and Partners were brought to the attention of citizens of T&T.

In the face of such disclosure, it was disappointing that agencies charged with overseeing the public’s interest such as EITI did not see it fit to interrogate the matter and to assume a position on Poten’s assertions. It is my expectation that as the EITI develops it would take a more active position on such matters.